Trump was talking about his own administration’s slashing of international aid – official development assistance (ODA) – in the form of cuts to the US Agency for International Development (USAid). The statement followed his customary off-the-cuff and pithy style. Succinct as it was, it captured a critical dynamic in global economics, and more specifically many African economies.
Utilising Trumpian brevity: aid is out and new drivers of prosperity must come in. Fortunately, there is strong evidence that this can be done. We might even look back on this moment as a blessing in disguise.
New era for aid
Let’s begin with the “aid is out” part. ODA faces major downward pressure, not just from the US, but also from other major donors. After years of mostly stable or growing levels of aid, international aid from official donors fell in 2024 by 9% compared to 2023, marking the first annual decline after five years of growth. For the first time in nearly 30 years, France, Germany, the United Kingdom, and the United States all cut their ODA in 2024. With data still coming in for 2025, the Organisation for Economic Cooperation and Development (OECD) projects a decline of between 9% and 17% in ODA for that year.
Very few countries – and none of the world’s eight largest donors – currently meet the UN’s ODA target of 0.7% of gross national income (GNI).
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Source: OECD (2025)
Two recent spikes in spending should not obscure the broader decline in ODA to Africa specifically. First, Covid-19 expenditure was an anomaly. And large proportions since then have gone to urgent humanitarian causes such as Gaza and the Ukraine.
The Institute for Economics & Peace projects a decline of between 20% and 40% in aid spending over the next several years and that sub-Saharan Africa could lose as much as one third of ODA flows, according to the Institute for Economics & Peace’s 2025 Vision of Humanity report.
There is certainly enough evidence to justify African nations strategising for a new normal of markedly lower aid.
Dead aid
How bad is it to lose ODA? Many might argue instinctively that aid can have highly desirable outcomes. And the abrupt manner in which USAid funding in particular has been cut has caused severe distress. However, there is a large body of evidence demonstrating that ODA can amount to not just unproductive spending, but destructive spending. In the worst cases, aid can end up funding bad actors, fuelling ineffective bureaucracies, and crowding out private activity.
Several prominent thinkers have been well ahead of the Trump administration. Multiple ills and failures have been associated with development aid over a long period.
Start with the growth record. William Easterly, Professor Emeritus of Economics at New York University and former World Bank economist, has argued that trillions of dollars in assistance have not reliably translated into durable economic expansion. In his account, countries that received substantial aid flows did not systematically outperform their peers. Growth spurts came and went, but self-sustaining development – where domestic investment, productivity and enterprise take over – proved elusive. Aid, he suggests, has often financed projects rather than prosperity. In Easterly’s words, “Remember, aid cannot achieve the end of poverty. Only homegrown development based on the dynamism of individuals and firms in free markets can do that.” (From The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, 2006).
Figure X: Negative correlation between aid as a proportion of GDP and GDP growth
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Source: Burnside, C., & Dollar, D. (2004). Aid, Policies, and Growth: Revisiting the Evidence
Note: Figure X above depicts a negative correlation between aid and growth after controlling for initial income and the quality of institutions, using data spanning the 1990s.
If the macroeconomic returns disappoint, the institutional side-effects can be more troubling still. Zambian economist and author Dambisa Moyo contends that prolonged aid dependence can weaken the very governance structures development requires. When governments rely on external transfers rather than domestic taxation, the social contract frays. Citizens who are not taxed demand less accountability; leaders who do not depend on taxpayers feel less pressure to deliver results. Over time, aid can entrench patronage networks, reward political loyalty over productivity, and crowd out the difficult work of building efficient tax systems. What begins as assistance can morph into inertia. “What Africa needs,” submits Moyo in her 2009 book Dead Aid, “is a hand up, not a handout.”
Moyo does not mince her words: “Aid has been, and continues to be, an unmitigated political, economic and humanitarian disaster for most parts of the developing world.”
Others strike a more conditional note. Craig Burnside and David Dollar found in a widely cited study, that aid can promote growth – but chiefly where sound policies and strong institutions already prevail. In countries with prudent fiscal management, low inflation, and open trade regimes, aid appears to reinforce positive trajectories. Elsewhere, it does little. The implication is awkward: transfers are most effective where they are least necessary. Institutions, not inflows, are the binding constraint.
Burnside and Dollar conclude their study with an instructive sentence: “Based on all the evidence, we think that it is good news that aid is now more systematically allocated to countries with sound institutions and policies. If anything, we would encourage aid-givers to strengthen this trend even more.”
In fragile states the risks multiply. Paul Collier has warned that large external rents – whether from aid or natural resource endowments – can aggravate governance problems if not tied to reform. Easy money can reduce incentives for peace-building, institutional strengthening, and economic diversification. Where state capacity is weak, external funds may fuel competition for control of the purse rather than investment in public goods. “The problem is not aid per se,” says Collier, “but aid in the wrong environment.”
None of this is to deny that aid saves lives. Vaccination campaigns, emergency food relief, and basic health interventions have delivered measurable benefits. But saving lives is not the same as building vibrant societies. The evidence suggests that while aid can alleviate symptoms and provide critical relief in emergencies, it rarely cures the underlying ailment of underdevelopment.
The current reality for African countries is that the debate is largely academic. Ultimately, it is donor nations who choose whether and how much ODA to provide. For those dealing with economic strategies and policies on the continent, the challenge is to make the best of the situation.
Investment beats aid
The wise policymaker in any nation that has lost significant ODA will rapidly move to solutioning. The unifying factor in the abovementioned critiques is that there is one thing that generates prosperity more reliably than aid: investment.
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Investment and people: A virtuous cycle
Li and Liu (2005) tackle one of development economics’ perennial questions: does foreign direct investment (FDI) genuinely spur growth in host economies, or is it simply a by-product of richer countries getting richer? Using a panel of 84 countries, they find that that capital inflows and expanding output can combine in a mutually reinforcing cycle rather than a one-way causal street.
The authors argue that FDI brings not just money, but skills that embed in the local economy, concluding that “the interaction of FDI with human capital exerts a strong positive effect on economic growth in developing countries”.
Being long-term capital by nature, FDI is rarely just a financial transaction. It comes with expertise. As Hoekman et al (2023) put it, “FDI contributes to an increase in employment, and shifts of workers towards modern industries and higher-skilled occupations.” Every dollar, euro or yen that arrives also brings skills that rub off.
Investment and jobs
FDI can also promote job growth. Data spanning 20 years starting in 2000 confirms that “FDI has a significant employment-enhancing effect irrespective of gender and age considerations … and that institutional quality amplifies this effect.” Importantly, the study covers sub-Saharan Africa and finds that the job-expansion holds regardless of gender or age considerations, and, as with Li and Liu, that “institutional quality amplifies this effect”.
Investing in health
All of this translates to tangible human benefits. FDI has been shown to improve health outcomes in a long-term study spanning data from 39 African nations. Specifically, “a unit increase in FDI is found to decrease neonatal mortality and infant mortality by 0.17 and 0.64 units, respectively … this could be that FDI enhances people’s ability to afford child health inputs, hence reducing child mortality.”
“If you don’t like something,” quipped Maya Angelou, “change it.” Just as important, the revered essayist and civil rights activist went on, “If you can't change it, change your attitude.”
African leaders don’t control foreign fiscal authorities. Africans can, however, control how they strategise in response to a new era for aid. Attracting investment and building institutional environments that are capable of transforming that into prosperity have power to turn the loss of aid into the gain of enduring economic growth and autonomy.
Ian Macleod, GIBS Centre for African Management and Markets (CAMM)
